What is SLP
Last updated
Last updated
SLP represents Fluent Finance’s dedicated liquidity provider token.
Overview
SLP is a composite of assets used for swaps and leveraged trading on the Fluent platform. Users can mint SLP with any asset from the index, and likewise, they can burn SLP to withdraw any asset from the index.
The minting and redemption price for SLP is calculated using a simple formula: the total value of all assets in the index, adjusted for open positions' profits and losses, divided by the total supply of SLP tokens.
In Sypher Finance, there is potential for spreads on certain tokens. When minting SLP, the calculation is based on the lower value of the token, whereas the higher value is considered during redemption.
For stablecoin tokens, the spread is determined by the price of the stablecoin as provided by Chainlink oracles, compared to the standard $1 USD benchmark. Additionally, the overall price of SLP is influenced by the spreads of the various tokens held within the liquidity pool.
The fees associated with minting or burning SLP and performing swaps will vary depending on whether the action stabilizes or destabilizes the asset distribution. For example, if the index has a dominant share of ETH and a minimal share of USDC, increasing the ETH proportion incurs a higher fee, while reducing the ETH allocation costs less.
Token weights are dynamically adjusted to protect SLP holders, taking into account open trading positions. If most traders are long on ETH, it will command a higher token weight. Conversely, if the majority are short, stablecoins will receive greater weight.
When token prices rise, the price of SLP increases as well. Even with many traders holding long positions, the allocated portion remains relatively stable in USD value. This is because profits from the reserved segment compensate for traders’ positions when prices rise. Conversely, if prices fall, losses incurred by traders help stabilize the USD value of the reserved fraction.
If many traders take short positions with higher weights leaning toward stablecoins, SLP holders effectively gain synthetic exposure to the tokens being shorted. For instance, if ETH is predominantly shorted and its price drops, the SLP price will decline. Conversely, if ETH's price rises, the SLP price will increase, reflecting the losses from those short positions.
Engaging with any smart contract or blockchain application entails inherent risks. At Sypher Finance, we have made significant efforts to mitigate these risks through rigorous testing, thorough audits, and ongoing bug bounty programs. Despite these measures, users should exercise due diligence and be aware of potential risks, including but not limited to:
Smart Contract Vulnerabilities: Although extensive audits help identify vulnerabilities, new exploits may emerge over time.
Market Risks: The volatile nature of cryptocurrency markets can lead to rapid losses, especially in leveraged positions.
Liquidation Risks: Users engaged in leveraged trading may face liquidation if their collateral value falls below certain thresholds.
Regulatory Risks: Changes in regulatory frameworks may affect the operation of the platform and the legality of certain services.
We encourage all users to familiarize themselves with these risks and invest only what they can afford to lose.